October got off to a tentative start with investors focused on the US debt ceiling impasse, according to Anthony Lawler, portfolio manager at GAM.

This issue was temporarily resolved by mid-month and markets broadly rallied from there, with equities, credit and bonds all moving higher. Many equity hedge and event driven managers reaped the rewards from keeping their gross exposure levels high.

“It was the right trade for equity hedge and event driven managers to have stayed fully invested, believing that the debt ceiling issue would be resolved or deferred, while corporate activities, such as stock buy-backs, continue,” says Lawler. “Macro data remained supportive with improving PMI numbers in China and Europe, for example. A number of these equity-related managers are staying fully gross invested coming into November as they see attractive fundamental alpha opportunities. But at the same time, they have decreased their net exposure to be less susceptible to a pause or reversal in equity markets should that come before year-end.”

Lawler further highlights that the continued ultra-loose monetary policy environment, although helpful to many managers, has not proved a panacea for all: “October was in many ways representative of the year to-date as a whole. Managers with significant equity-related positioning, and to a lesser extent long credit exposure, benefited, while those primarily trading other asset classes, such as currencies and rates, generally did not see strong results. Among global macro and CTA managers, many saw broadly flat performance on the month, while it was the trend following managers who led the pack, largely because they were generally meaningfully long the equity trend.”

Broad measures showed hedge funds in positive territory for October, with the HFRX Global Hedge Fund index up 1.2 per cent. At the strategy level, the four main approaches closed in the black, with equity hedge and event driven leading the way, up 1.9 per cent and 1.8 per cent, respectively, given the supportive equity market backdrop. The macro/CTA strategy produced 0.6 per cent and relative value was up 0.3 per cent, all according to HFRX strategy index performance reports.